Russia's response to the Nabucco pipeline project

CES ^ | March 16, 2006 | Agata Loskot-Strachota

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Russia's response to the Nabucco pipeline project

Russia strives to stop gas from the Caspian and Middle Eastern regions reaching European markets

In late February 2006, Russia came up with a proposal to build a new gas export route called the Southern Gas Pipeline. The new route would deliver Russian gas via Turkey to Southern and Central Europe. The Russian initiative will compete with the EU-promoted Nabucco gas pipeline project which is meant to diversify gas supplies to Europe. The Southern Gas Pipeline is also part of the broader strategy of Russia's energy policy, which aims to maintain the Russian Federation's position on the European gas market, and limit gas supplies from competing sources. The Southern Pipeline project is also another of Russia's ideas to diversify its export routes and to diminish its dependence on the current transit countries.

Assumptions of the Nabucco project

The Nabucco gas pipeline project was first presented in 2002; its route intended to transport gas from the Caspian Sea region and the Middle East to Europe. The projected gas pipeline would run from Turkey via Bulgaria, Romania and Hungary to Austria, and possibly to other Central European countries. 3400 km long, the route would be completed by 2011, with an initial capacity of 8 billion m3 and a target capacity of 25-30 billion m3. It would cost US$4.6 billion. The project was developed by energy companies from the countries that would host sections of the pipeline, including Turkey's Botas, Bulgaria's Bulgargaz, Romania's Transgaz, Hungary's MOL and Austria's OMV. Nabucco would deliver gas to the transit countries and other European states, including the Czech Republic; talks with Germany are underway. However, no contracts for the purchase of gas have been signed as yet. Gas for the new pipeline would come from the Caspian countries, i.e. Azerbaijan and possibly Turkmenistan, as well as from the Middle East, above all Iran (which has the world's second largest gas reserves), Iraq and Egypt.

The Nabucco project has been promoted by the European Union as an undertaking that will diversify routes and sources of gas supplies for Europe, and thus improve the EU's energy security. As such, Nabucco has been included in the list of priority gas pipeline projects under the EU's Trans European Networks (TEN) programme, and EU financial support has been earmarked for it. The project is also in line with Ankara's strategy of creating an important gas transit corridor to Europe in Turkish territory.

However, the project has certain weaknesses which have delayed its launch. Although the regions that would provide the resource basis for Nabucco have huge export potential, supplies at an adequate level have not yet been guaranteed. Infrastructure links to the producer countries are insufficient, and the problematic political situation in Iran may threaten the stability of supplies from this direction. There are also some concerns about the actual demand in Southern and Central Europe for the gas transmitted by Nabucco, particularly in connection with the new long-term contracts for gas supplies from Russia, which countries in the region are concluding (Romania has signed such a deal, and talks with Bulgaria and Hungary are underway).

Nabucco and the energy policy of the Russian Federation

Given its assumptions, Nabucco constitutes competition for Russia's energy plans in the region. The new gas pipeline would provide gas to Russia's traditional markets, thus undermining Russia's position in the Southern and Central European markets. It would also allow gas from competitors to Russia to reach Europe (for example, by enabling the export of Caspian gas independently of Russia). This runs counter to the objectives of Russia's energy policy, which aims to preserve or strengthen Russia's position in Europe. At the same time, Russia has been seeking to diversify its own gas export routes, in particular to reduce its dependence on the transit of gas via Ukraine. Consequently, for about the last year Russia has been stepping up measures to secure its energy interest in connection with the Turkish transit projects. The most important objective for Russia in this respect is to start exporting its gas via Turkey. In this manner Russia would gain one more gas export route to Southern Europe, as well as a chance to enter new markets (including Israel). It would also lower its dependence on the existing transit countries. By gaining access to Turkey's transit gas pipelines, Russia would also be able to suppress, or in an extreme scenario even completely stop, gas exports to Europe from sources alternative to its own. This would alleviate the threat to Russia's position in the European gas market posed by potential competition from countries in the Caspian Sea region and the Middle East.

Russia is taking specific measures in order to secure its energy interests, as evidenced by the successive visits paid by Russian officials to Turkey. Questions concerning the possibility of transiting Russian gas via Turkish territory have been discussed on several occasions, including in July 2005 during President Putin's visit to Ankara, and in February 2006 when the Gazprom Chairman and the Russian Foreign Minister visited Turkey. During these meetings Russia suggested expanding the capacity of the Blue Stream gas pipeline (which connects Russia with Turkey via the Black Sea) in order to enable Russian gas to be exported via the Turkish transit corridor in future. Recently, a new element was added to Russia's endeavours; the so-called Southern Gas Pipeline project was announced. The new route for the export of Russian gas delivered to Turkey via the Blue Stream would be identical to the route of Nabucco (via Turkey, Bulgaria and Romania to Central Europe). The Hungarian government has expressed a provisional interest in this project.

Conclusions

Russia's Southern Gas Pipeline concept is a way of using the idea of a new export route as developed by the initiators of the Nabucco project for Russia's own ends, that is, to send Russian gas via a new route alternative to the existing ones, to preserve Russia's position in the European markets, and to restrict access to gas from competing sources. It is unlikely that two separate gas pipelines would be built along the same route to serve the same markets, and so the Russian project is supposed to preclude the Nabucco project being constructed as initially assumed. At present, it is difficult to predict the precise outcome of the struggle over the new route, and to say whether a modified version of Nabucco will be built with Russia joining the project, or whether the parties will stick to their separate gas pipeline projects. Russia's involvement in the Turkish gas pipeline projects would guarantee the security of gas supplies, which is in the interest of the project initiators, Turkey as the transit country, and European consumers. However, it should be remembered that Russia's objectives run counter to the EU's aim of diversifying gas supplies and ensuring alternative gas supplies to the countries of Southern and Central Europe, which heavily rely on Russian gas supplies.

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